Big-ticket deals drove the aggregate value of global technology mergers and acquisitions (M&A) to US$52.1bn in the second quarter of 2011, nearly doubling the deal value from an already strong first quarter, according to Ernst & Young’s Global Technology M&A update, April – June 2011. The surge was powered by industry consolidation and by ongoing disruptive innovation in areas such as cloud computing, smart mobility, internet and mobile video, the smart grid and solar energy, the report states.
The
US$52.1 billion in Q2 2011 aggregate value (of deals with disclosed values) was
92% higher than in Q2 2011 (US$27.1bn) and 69% higher than the year-earlier
quarter (US$30.8bn). The average value for deals with disclosed-values rose to
$194m — the highest quarterly average since the first quarter of 2000, during
the dot-com boom. According to published reports, the quarter includes the
20th-largest global technology deal ever by dollar value.
Companies
continued this upward trend in Q2 2011 of making multiple small acquisitions
and weaving them together to address strategic business initiatives. We noted
this trend, for example, among internet companies, which acquired multiple
social networking companies, and among established software and SaaS companies,
which bought multiple SaaS companies.
Also
exemplifying this pattern were software and SaaS providers purchasing social
networking companies in order to add social functions into their enterprise
applications or their advertising/marketing platforms. Similarly, the rise of
"deal-a-day" e-commerce companies was reflected in a series of
consolidation transactions among small and regional competitors and by
geographic expansion deals done by larger competitors.
Cross-border
deals add to growth
Q2
2011 data also shows the growth of cross-border (CB) deals in both volume and
value. CB deal volume in the quarter was 16% higher sequentially, compared with
an 11% decline in in-border (IB) deals, and 32% higher than the year-earlier
quarter, compared with a 19% increase for IB. At US$24bn, the aggregate value
of CB deals was 46% of the aggregate value for all Q2 2011 deals (CB + IB), up
from 40% in Q1 and for all of 2010. The report suggests that increasing
globalization and the growing volume of “overseas” cash stockpiled by US-based
companies may be behind the increase in CB deal-making as the US acquired 56%
of all CB value acquired.
Overall,
deal volume for the quarter increased 24% year-over-year (YOY) to 777 deals,
but slightly declined 2% sequentially from 794 deals in quarter 1. Although
small, it was the first sequential quarterly decline since Q1 2009.
Continued
strong outlook for 2011 M&A
Given
a strong first quarter start to the year and the unleashing of big-ticket deals
in Q2 2011, there is increasing momentum behind global technology M&A
transactions heading into the second half of the year. In addition, technology
continues to influence the development of the entire global economy, as
information technology evolves into an increasingly valuable component of all
products and services.
Moreover,
technology companies continue to stockpile cash, which gives them the
flexibility to act when strategic M&A opportunities arise. In aggregate,
the cash and investments held by the sector’s top 25 companies (as defined in
the report) grew to $591bn by the end of Q2 2011 — an 18% YOY increase from
US$499bn at the end of Q2 2010. After the first quarter M&A results, we noted
the potential for a big year for technology M&A in 2011, but we were
concerned over increasing divergence between buyers and sellers over valuation,
geopolitical unrest, the continuing US debt ceiling and government spending
debate, global debt issues and other unforeseeable possibilities. Yet all these
hurdles were overcome to produce a very robust second quarter.
Moreover,
technology companies have the fuel they need to increase M&A spending. In
aggregate, the cash and investments held by the sector's top 25 companies (as
defined in the report), which topped the half-trillion-dollar mark by the end
of 2010, grew to US$544b by the end of 1Q11 — an 18% YOY increase from US$461b
at the end of 1Q10. "These truly
exciting technology innovations, the growing cash stockpiles that technology
companies are increasingly challenged to put to good use and the strong start
to the year represented by these first quarter M&A results suggest a big
year for technology M&A in 2011. Realistically, however, we must temper
those pluses with concern over increasing divergence between buyers and sellers
over valuation, geopolitical unrest, global debt issues and other unforeseeable
possibilities.
More info and the complete report is available (free) for download at: www.techmediamergers.com
Source(s): Ernst & Young, The 451 Group, Factset Mergerstat, Company Websites and News, SEC Filings, Yahoo Finance, Bloomberg, Gartner
